Ethereum Watch

• Ethereum’s Finality pause caused a decline in active addresses, but they bounced back soon after. 
• While the outflow trend has reversed, Ethereum has yet to recover fully from its bearish trend.

The Ethereum [ETH] blockchain encountered a technical hiccup not too long ago, leading to a halt in the finalization of blocks within the network. However, the issue was resolved after some time, and the network’s Finality was restored. So, how did various key metrics respond to this eventful situation?

Read Ethereum’s [ETH] Price Prediction 2023-24

Ethereum: Finality pause and Inactive Leak trigger

During 11 – 12 May, a significant incident occurred on the Ethereum network, involving over 60% of validators ceasing their duties and causing a disruption in Finality.

Finality, a crucial state, occurs when a supermajority of validators (representing two-thirds of the total stake) attest to the definitive state of the blockchain. This guarantees that a block and its processed transactions remain unalterable and cannot be removed from the blockchain.

The second disruption in Finality led to an unprecedented Inactivity Leak, per a recent post from Glassnode. This emergency state was activated to restore Finality on the Beacon Chain.

Both incidents did not affect the end-users on the #Ethereum mainnet with transactions being processed as usual. However, the second stall in Finality resulted in the first ever Inactivity Leak.

An Inactivity Leak is an emergency state utilized to recover Finality on the Beacon… pic.twitter.com/7xvlH8yVyP

— glassnode (@glassnode) May 14, 2023

In an Inactivity Leak, inactive validators face increasingly severe penalties until they exit the chain or resume their participation. These penalties are subtracted from the affected validators’ beacon chain accounts, effectively burning a portion of their holdings. This leads to a reduced issuance of ETH during the inactivity leak.

Ethereum active addresses bounce back

According to data from Santiment, an analysis of the seven-day active address metric revealed a noticeable impact from the lack of Finality on 11 – 12 May. During those days, the chart displayed a visible decline, with active addresses dropping to approximately 3.8 million.

However, the metric has since recovered; at the time of writing, it stood at a little over 4 million.

Similarly, a closer examination of the daily active address metric highlighted a sharp decline on 11 May, but a subsequent rebound has occurred. As of this writing, there were 186,000 ETH daily active addresses, indicating a recovery from the earlier setback.

Negative Netflow as ETH attempts recovery

Based on Netflow data from CryptoQuant, ETH exhibited a trend of more outflows before the technical issue on the Beacon chain. Interestingly, there was an unusual shift in the pattern on 11 – 12 May, where inflows dominated the market.

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However, the flow trend has reversed, and outflows have become the predominant movement. At the time of writing, the data indicated over 19,000 outflows.

When observing the daily timeframe of ETH, it could be noted that the coin was making strides toward recovery. Trading at around $1,800 at press time, ETH experienced a gain of over 1.5%. However, it had not fully recovered from its bearish trend, as the Relative Strength Index (RSI) indicated.

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